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on stock return, portfolio and risk management - Assignment Example
Finance & Accounting
Pages 4 (1004 words)
Identify the components of a stock's realized return.
A stock’s realized return is represented by the overall gain an investor obtains from an investment. The reason people invest in common stocks is to make money. The primary components of a stock’s realized return are capital gains and dividends paid out to the investor…
The dividends an investor might receive could be either a cash dividend or a stock dividend. To calculate the stock realized return you have to add the capital gain obtained at the moment of sale and the total dividends received while the investor held the common stock. The addition of these two variables would then be divided by the original price the investor paid for the stock or lot of stocks. This calculation would give the gross return. The net return is calculated by subtracting the tax expenses associated with the investment from the numerator of the formula. It is important for investors to periodically calculate the return they would achieve if they sold a stock at a particular point in time. This can help investors determine when it is the best moment to sell their stock investment. 2. Contrast systematic and unsystematic risk.
There are two types of risks that investors must pay close attention to. The two types of risks are systematic and unsystematic risk. Systematic risk is a risk factor that cannot be control by the investor or the firm due to the fact that it is a market inherent risk. These risk factors affect all firms. Some examples of systematic risks include recessions, wars, inflation, and the occurrence of natural events. In the aftermath of the March 11, 2011 earthquake in Japan the valuation of most Japanese stocks when down a lot. This risk could not have been predicted by an investor. Unsystematic risk is also referred to as firm specific risk or diversifiable risk. Unsystematic risks are risks that can be controlled by the firm. ...
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